Strategic issues and problems eBay faces

The purpose of this memo is to identify strategic issues and problems Ebay faces, provide the rationale behind the identification of these issues and problems, and offer strategic recommendations that will enable the company to cope with the identified challenges.The major strategic issue facing eBay now is the rapid change in the market environment. Taking into account that the success of a company in online business is to a great extent determined by the success of its partners and competitors, eBay should be able to take swift and decisive action to react to the change.

At present, there is a need to keep an eye at Yahoo! As Jerry Yang replaces Terry Semel as CEO, the company might be ready for a strategic turnaround. Yet if this turnaround does not happen any time soon, there are rumors that Yahoo! can be sold. Potential candidates, as The Economist (2007) informs, include Microsoft, eBay, News Corporation, and Time Warner.Given such possibility, eBay should arrive at a balanced decision whether it wants to acquire Yahoo!. It is important to keep in mind that partnership between two companies has proved to be successful in the past.

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In 2006, the companies agreed to join their efforts to compete with Google, and Yahoo! gained deeper access to eBay’s inventory systems, which meant better ad targeting and more direct ad-to-purchase. In return, Yahoo! received the right of becoming the exclusive provider of graphical ads on eBay (Bylund, 2006).However, a merger with Yahoo! should not be regarded as the best option for eBay. One of the reasons is that Yahoo! is faring not so well lately.

Acquiring Yahoo! would mean great financial risk and responsibility. At the moment, this is highly undesired for eBay since it needs to strengthen its own market position. Although it is a historical chance for eBay to expand the range of its services and gain larger market share, the risk involved in this transaction is higher than the expected returns, especially if we are thinking of a short-term perspective.Another reason why acquiring Yahoo! should not be regarded as a priority for eBay is that Microsoft is a more likely candidate. If it decides to acquire Yahoo!, it will go great length to make this happen. In this situation, trying to outplay Microsoft will lead to excessive costs for eBay in terms of time and effort spent.

At the same time, eBay should be ready for Yahoo! being acquired by Microsoft, News Corporation, Time Warner, or some dark horse. It will mean significant realignment of forces on the market. In order to be able to reap the benefits that Yahoo! partnership brought, eBay will have two options to consider. Under the first scenario, eBay would need to negotiate mutually acceptable partnership terms with new Yahoo! owner. This scenario is more likely, since merger with Yahoo! will give any company enough confidence to be interested in partnerships rather than head-to-head competition. Under the second scenario, eBay would need to look for new strategic partners to fulfill the functions that are now performed by Yahoo!.